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🇰🇷 South Korea /Economy & Trade

South Korea’s core inflation hits three-year high, distorted by telecom discount base effect

From Hankyoreh · () Korean

Translated from Korean and summarized by DistantNews. Read the original for the full story.

At a glance

News Documents & data Context piece
  • South Korea’s consumer price index rose 3.1% year on year in August, returning to the 3% range after July’s 2.8% increase.
  • Core inflation excluding food and energy climbed 3.4%, its highest rate since May 2023, partly because last year’s SK Telecom discounts lowered the comparison base.
  • The Bank of Korea expects headline inflation to ease in September but says underlying price pressures will continue, after raising its policy rate to 3.00% for a second straight month.

South Korea’s headline inflation returned to the 3% range in August, but the sharper signal came from core prices. Inflation excluding food and energy rose 3.4% from a year earlier, the highest increase in three years and three months.

The country’s consumer price index rose 3.1% year on year, following a 2.8% increase in July. The August figure matched the rate recorded in May and was slightly below June’s 3.2% rise. Officials attributed much of the renewed increase to a base effect from last year’s telecommunications discounts.

The base effect from last year’s mobile-phone fee reduction was around 0.58 percentage points. Removing it, consumer inflation would be around 2.5%.

— Lee Doo-wonThe economic statistics official explained how last year’s telecom discount affected the August inflation figure.

SK Telecom cut mobile-phone bills by 50% for more than 20 million subscribers for one month in August last year, after a SIM-card hacking incident. Mobile-phone charges fell 21.0% at the time. This August, they rose 26.7% from a year earlier, pushing public-service prices up 6.5%, their largest increase since August 2001.

September consumer inflation is expected to be lower than in August as the base effect disappears, but an underlying upward trend is expected to continue, centered on core items.

— Bank of KoreaThe central bank gave its outlook at a meeting reviewing the inflation situation.

Lee Doo-won, an economic statistics official, said the discount base effect added about 0.58 percentage points to consumer inflation. Without it, he said, inflation would have been about 2.5%. Petroleum prices rose 14.2%, although the increase slowed from 15.5% in July. Agricultural, livestock and fishery prices fell 2.6%, while processed-food prices rose 1.5%. The everyday-living price index increased 3.2%.

The Bank of Korea said September inflation would likely fall as the telecom base effect fades, but underlying price increases would continue. The central bank recently raised its policy rate to 3.00%, marking an unusual second consecutive monthly increase. Governor Shin Hyun-song said earlier that acting before inflation spreads can minimize the economic cost of intervention.

Many studies show that responding early, before upward price pressure spreads, ultimately minimizes the cost to the economy.

— Shin Hyun-songThe central bank governor explained the reasoning behind recent interest-rate increases.
About this summary

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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